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A file photo of KFC's logo outside a store in London. Colonel Sanders’ grandson Trigg Adams told the Louisville Courier Journal on Wednesday that it is “an absolute lie” that Sanders used the racial slur or any other racially offensive words.

The family of KFC’s Colonel Harland Sanders has come to his defense after Papa John’s founder John Schnatter suggested the colonel had used the N-word but hadn’t faced criticism for doing so.

Colonel Sanders’ grandson Trigg Adams told the Louisville Courier Journal on Wednesday that it is “an absolute lie” that Sanders used the racial slur or any other racially offensive words.

Schnatter was on a call with marketing agency Laundry Service in May when he tried to downplay comments he made about the National Football League and allegedly said, “Colonel Sanders called blacks n-----s," and complained that the KFC founder never faced public backlash. The call was a role-playing exercise for Schnatter to prevent future public relations fumbles and came to notice after Forbes magazine reported it last week.

Then on Friday, Schnatter told Louisville radio station WHAS that he was “just talking the way that the Colonel talked.”

In a statement, Colonel Sander's great-granddaughter Cindy Wurster Sjorgen, said that Sanders "was known to throw around a few cuss words but never a racial slur. For Mr. Schnatter to use the colonel as a scapegoat for his own horrible, disgusting mouth and racist beliefs is inexcusable."

Both Papa John’s and KFC owner Yum Brands are headquartered in Louisville, Kentucky.

Fast-food chain Wendy’s had preliminary merger talks with Papa John’s before Schnatter stepped down, a source familiar with the situation told CNBC. The deal talks highlight the opportunity potential acquirers see in improving Papa John's technology and scaling up in a still fragmented pizza chain industry. Still, the public relations fall out that followed Schnatter's resignation is likely to complicate any potential deal.